In Deciding Whether to Drop or Keep a Product Line

question 54

Multiple Choice

In deciding whether to drop or keep a product line, all the following are relevant to the decision except:

• A) The level of unavoidable fixed costs.
• B) The segment margin generated by the product line.
• C) Demand interdependencies across product lines of the company.
• D) Effect of the decision on overall company morale.
• E) Whether dropping the product line today would eliminate future options for growth and expansion.

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Definitions:

Marginal Investor

A marginal investor is a representative investor whose actions reflect the overall market sentiment and whose transactions can affect a security's price.

Common Share

Equity ownership in a company, providing voting rights and entitling the shareholder to a share of the company's success through dividends and/or capital appreciation.

Dual-Class Shares

Sometimes created by a firm to meet special needs and circumstances. Generally, when special classifications of stock are used, one type is designated “Class A,” another as “Class B,” and so on. For example, Class A might be entitled to receive dividends before dividends can be paid on Class B stock. Class B might have the exclusive right to vote.

Voting Control

The power held by a shareholder or group of shareholders who possess a sufficient number of voting shares to influence or direct the management and decisions of a company.